Olam International - DBS Research 2015-11-16: Waiting for fulfillment of promises

Olam International - DBS Research 2015-11-16: Waiting for fulfillment of promises OLAM INTERNATIONAL LIMITED O32.SI 

Olam International - Waiting for fulfillment of promises 

Investors on the sidelines for now. 

  • We maintain our HOLD call with a lower TP of S$2.01. 
  • We believe investors will continue to remain on the sidelines until Olam delivers on its positive free cash flow targets by 2016 and successfully integrates its recent US$1.2bn acquisition of ADM Cocoa. 

Significant medium term upside on successful execution. 

  • While we are cautious near term, there is significant upside to Olam’s earnings over the medium term if Olam successfully executes on its plans. Currently, Olam has S$3.2bn worth of immature assets which on maturity could generate an additional c.S$380m of EBITDA. 
  • In addition, a successful integration of ADM Cocoa should deliver US35-40m worth of synergies. This is on top of any incremental earnings from new investment opportunities Olam has with its new partner, Mitsubishi Corporation, which recently took a 20% interest in the group. 
  • All these factors may enable Olam’s share price to re-rate closer to S$2.23 and S$2.75, price levels at which Temasek and Mitsubishi acquired their most recent equity interests in Olam. 

Negative sentiment and low free float. 

  • Given the negative sentiment surrounding other commodity trading companies such as Glencore and Noble Group, we believe investors may continue to shun the sector and/or Olam in the near term. This is especially in light of Olam’s small free float of c.17.5%. 


  • Given weaker than expected results, we cut our FY15-17F core earnings by 9-11% and lowered our TP to S$2.01 from S$2.14. 
  • Our TP is an average of our PE valuation (S$1.97, pegged to -1SD foward PE of 13.5x) and DCF valuation (S$2.01). 
  • Given limited near-term re-rating catalysts, we maintain our HOLD recommendation. 

Key Risks to Our View: 

  • The key risk to our neutral stance is earlier than expected delivery of synergies from the ADM Cocoa acquisition and/or stronger earnings on the back of a faster turnaround of the dairy and packaged food businesses.

Mervin Song DBS Vickers | http://www.dbsvickers.com/ 2015-11-16
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.01 Down 2.14